Abstract
This study aims to investigate the impact of Good Corporate Governance (GCG) on the financial performance of sharia banking. GCG is measured by the Board of Commissioners Performance, the Board of Commissioners Composition, the Number of Audit Committees, the Board of Directors, and the Sharia Supervisory Board Performance, whereas financial performance is proxied by Return on Assets, financing risk (Non-Performing Financing), and capital (Capital Adequacy Ratio). Sharia commercial banks registered by Bank Indonesia made the sample of this study. Annual reports and GCG reports of sharia commercial banks from 2014 to 2017 are used as a data source. The study uses a panel data regression approach to analyze the data; some interesting results have been obtained. The Sharia board positively affected financial performance of Islamic banks in terms of return on assets and capital adequacy ratio, and negatively as to non-performing financing. Similarly, the board of directors had a significant impact on the financial performance of Islamic banks in the same direction as the sharia supervisory board in terms of the three components. Meanwhile, the board of commissioners had a significant and positive impact only on the return on assets of Islamic banks in Indonesia.
Highlights
The financial crisis has broadened the enthusiasm of scientists about the link between corporate governance and the financial sector performance (Pathan & Faff, 2013), such links are still open to debate
Good Corporate Governance (GCG) is measured by the Board of Commissioners Performance, the Board of Commissioners Composition, the Number of Audit Committees, the Board of Directors, and the Sharia Supervisory Board Performance, whereas financial performance is proxied by Return on Assets, financing risk (Non-Performing Financing), and capital (Capital Adequacy Ratio)
This paper investigated the role of corporate governance in the financial performance of Islamic banks
Summary
The financial crisis has broadened the enthusiasm of scientists about the link between corporate governance and the financial sector performance (Pathan & Faff, 2013), such links are still open to debate. This study can contribute to the literature on the role of GCG in determining the financial performance of Islamic banks, since most of the previous research, such as Pathan and Faff (2013), Ekaputri (2014), Permatasari and Novitasary (2014), Dewany (2015), and Wahyudin and Solikhah (2017), do not deal with the component of Corporate Governance, but use a composite index obtained from the bank’s personal assessment. The important point of previous studies to be emphasized was that most of them used independent b) the occurrence of conflict of interest due to variables of Good Corporate Governance in the unequal objectives, when management does form of a composite index, which is not a specific not always act in accordance with the own- component of the GCG. GCG and financial performance sional corporate governance of the Islamic banks
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